How Silicon Valley Is Hollowing Out the Economy (and Stealing From You to Boot)

Jaron Lanier’s latest book, Who Owns the Future?, begins by noting an instructive coincidence: the bankruptcy of the photography giant Kodak occurred within months of Facebook’s billion-dollar acquisition of the photo-sharing site Instagram. This would be just one example of the destructive dynamism of American capitalism, a process through which old companies are overtaken by new technology and new firms more in tune with the needs of customers — and that perhaps benefits us all.

Except for one thing, that is: whereas Kodak employed 140,000 workers during its heyday, Instagram employed just 13 people when it was purchased in April 2012.

“Where did all those jobs disappear to?” Lanier asks. “And what happened to the wealth that those middle-class jobs created?” Lanier’s answer is that the new “information economy,” which is now superseding the manufacturing economy, is developing in such a way that the rewards are filtering to an elite few at the expense of everybody else.

Lanier is certainly not the first public intellectual to expound upon rising income inequality or the fact that the emergent information economy isn’t able to produce the sort of middle-class jobs that automation is destroying. But Lanier, a computer scientist who made his name in the field of virtual reality (a term he coined) in the 1980s, is one of the few conversant enough in the necessary disciplines — namely history, economics and technology — to approach the problem holistically.

One popular view of the American economy’s recent troubles is that we’ve become too decadent, that we no longer make anything the rest of the world wants, and that our economy will not recover until we can learn to overcome our addiction to debt and cheap, foreign-made goods. And if one were to look at where the average American gets his paycheck these days, there’s evidence to support this worldview. Fewer and fewer Americans are employed in making physical goods — just 9% of the population works in manufacturing, compared with 40% during World War II. But total manufacturing output — that is, the dollar value of all the things American companies make — has continued to increase. In fact, by some measures the U.S. produces more stuff than any other country in the world, including China.

The missing variable in this equation is automation. We’re still making a ton of stuff here; it’s just that machines are doing more and more of the making. As a technologist, Lanier finds this dynamic obvious, though it tends to sneak up on the rest of us. Take for instance, the example of the self-driving car. While most of us see a curious but impractical invention, Lanier sees a tool that could devastate the middle class:

“Humans are terrible drivers. We kill each other in car accidents so frequently that the toll has become a more deadly problem than wars or terrorism. It’s one of our biggest sources of death and pain … the motivations for developing self-driving cars are so extraordinarily powerful that it’s hard to imagine stronger ones. Results from experiments thus far indicate that it is unlikely robots will ever drive as badly as people. My mother died in a car accident. What could be more compelling?”

Lanier goes on to note that roads filled with self-driving cars could save energy by making streetlights unnecessary. Travel would become vastly more efficient because cars could coordinate with one another, able to take advantage of the “full bandwidth of the freeway.” Politics may slow its implementation, but in the long run the appeal of such safe and energy-efficient technology will be hard to resist. And once this technology enters the mainstream, what happens to the millions of people around the world who make their living operating vehicles?

This story isn’t a new one, of course. Ever since the Industrial Revolution, technology has been making previously lucrative careers obsolete. And as far back as Aristotle, philosophers have been worrying that technology would ultimately beget mass unemployment. That scenario has never come to fruition because even as technology destroys some jobs, it creates others. But according to Lanier, this process is breaking down — not because of some inherent flaw in capitalism, as Marx would have argued, but because of the way we’ve allowed the information economy to develop.

And this is because powerful forces in the technology industry have cleverly persuaded us to work for free. The information economy has the potential to be just as consequential and remunerative as the manufacturing economy, but most of the economic activity is taking place “off the books,” and the only players extracting any monetary value are big companies like Google and Facebook. To illustrate how this works, Lanier gives the example of translation services offered by Microsoft or Google. He writes:

“It’s magic that you can upload a phrase in Spanish into the cloud services of companies like Google or Microsoft, and a workable, if imperfect, translation is returned. It’s as if there’s a polyglot artificial intelligence residing up there in the great cloud server farms.

But that’s not how cloud services work. Instead, a multitude of examples of translations made by real human translators are gathered over the Internet. These are correlated with the example you send for translations. It will almost always turn out that multiple previous translations by real human translators had to contend with similar passages, so a collage of those previous translations will yield a usable result.”

Technology has made what once would have been seen as a miraculous feat into something quotidian and available practically for free. But, Lanier argues, it’s only an illusion that technology is responsible for the translation. In fact, the translation was done by thousands of human beings. Your retrieval of this information was facilitated by technology, but the work was done by humans — humans who will never be compensated for it. And this business model pervades Silicon Valley. Big tech firms lure you online with free media and services, while simultaneously encouraging you to provide services and media to others for free. Amazon makes money off of your product reviews. Twitter makes money from your tweets.

The first victims of this business model have been journalists, musicians and photographers. Lanier points out that the technological punditry has often cheered the demise of these careers as sources of secure middle-class jobs in their enthusiasm for a cheap, bountiful online experience. But as the “real” economy becomes more and more automated, what information-based work is safe from a similar fate? Education seems to be the next industry primed for the sort of disruption that the music industry faced 10 years ago, as the cost of education continues to rise at the same time the tools necessary for self-directed learning are increasingly at our fingertips.

Lanier calls his book a “work of futuristic economics,” or “speculative advocacy.” In other words, he’s imagining economic problems that are at least a generation away. But the contours of these problems are already taking shape, and he is right to feel the need to get a handle on them early. The Silicon Valley institutions that have such great influence over our lives didn’t get to where they are by being unconvincing. The new tools and toys that the tech industry produces are seductive, and for the most part the public has simply followed Silicon Valley wherever it has wanted to go, without stopping to think about the world that it’s creating.

But Lanier is asking us to stop and examine the economy we’re allowing to be created around us. If automation will subsume most of what we consider to be work, how will we spend our days, and how will we divvy up the resources created by the machines? It’s likely too early to come up with the solutions to such problems yet, but it will almost certainly involve the government. Government is the tool through which we set the rules and boundaries of markets. In a world where the most valuable assets are virtual, politics will play an increasingly important role.

Ultimately, Lanier envisages a future in which we would retain ownership of our virtual selves, the content we produce online, and the incremental improvements we make — passively or actively — to the products created by powerful companies. Some sort of universal micropayment infrastructure would be necessary to allow capital to flow to and from each player in the economy. Setting up this infrastructure will be a monumental undertaking for sure, but as Lanier points out, no more monumental than the infrastructures that have already been created.

Jaron Lanier’s latest book, Who Owns the Future?, begins by noting an instructive coincidence: the bankruptcy of the photography giant Kodak occurred within months of Facebook’s billion-dollar acquisition of the photo-sharing site Instagram. This would be just one example of the destructive dynamism of American capitalism, a process through which old companies are overtaken by new technology and new firms more in tune with the needs of customers — and that perhaps benefits us all.

Except for one thing, that is: whereas Kodak employed 140,000 workers during its heyday, Instagram employed just 13 people when it was purchased in April 2012.

“Where did all those jobs disappear to?” Lanier asks. “And what happened to the wealth that those middle-class jobs created?” Lanier’s answer is that the new “information economy,” which is now superseding the manufacturing economy, is developing in such a way that the rewards are filtering to an elite few at the expense of everybody else.

Lanier is certainly not the first public intellectual to expound upon rising income inequality or the fact that the emergent information economy isn’t able to produce the sort of middle-class jobs that automation is destroying. But Lanier, a computer scientist who made his name in the field of virtual reality (a term he coined) in the 1980s, is one of the few conversant enough in the necessary disciplines — namely history, economics and technology — to approach the problem holistically.

One popular view of the American economy’s recent troubles is that we’ve become too decadent, that we no longer make anything the rest of the world wants, and that our economy will not recover until we can learn to overcome our addiction to debt and cheap, foreign-made goods. And if one were to look at where the average American gets his paycheck these days, there’s evidence to support this worldview. Fewer and fewer Americans are employed in making physical goods — just 9% of the population works in manufacturing, compared with 40% during World War II. But total manufacturing output — that is, the dollar value of all the things American companies make — has continued to increase. In fact, by some measures the U.S. produces more stuff than any other country in the world, including China.

The missing variable in this equation is automation. We’re still making a ton of stuff here; it’s just that machines are doing more and more of the making. As a technologist, Lanier finds this dynamic obvious, though it tends to sneak up on the rest of us. Take for instance, the example of the self-driving car. While most of us see a curious but impractical invention, Lanier sees a tool that could devastate the middle class:

“Humans are terrible drivers. We kill each other in car accidents so frequently that the toll has become a more deadly problem than wars or terrorism. It’s one of our biggest sources of death and pain … the motivations for developing self-driving cars are so extraordinarily powerful that it’s hard to imagine stronger ones. Results from experiments thus far indicate that it is unlikely robots will ever drive as badly as people. My mother died in a car accident. What could be more compelling?”

Lanier goes on to note that roads filled with self-driving cars could save energy by making streetlights unnecessary. Travel would become vastly more efficient because cars could coordinate with one another, able to take advantage of the “full bandwidth of the freeway.” Politics may slow its implementation, but in the long run the appeal of such safe and energy-efficient technology will be hard to resist. And once this technology enters the mainstream, what happens to the millions of people around the world who make their living operating vehicles?

This story isn’t a new one, of course. Ever since the Industrial Revolution, technology has been making previously lucrative careers obsolete. And as far back as Aristotle, philosophers have been worrying that technology would ultimately beget mass unemployment. That scenario has never come to fruition because even as technology destroys some jobs, it creates others. But according to Lanier, this process is breaking down — not because of some inherent flaw in capitalism, as Marx would have argued, but because of the way we’ve allowed the information economy to develop.

And this is because powerful forces in the technology industry have cleverly persuaded us to work for free. The information economy has the potential to be just as consequential and remunerative as the manufacturing economy, but most of the economic activity is taking place “off the books,” and the only players extracting any monetary value are big companies like Google and Facebook. To illustrate how this works, Lanier gives the example of translation services offered by Microsoft or Google. He writes:

“It’s magic that you can upload a phrase in Spanish into the cloud services of companies like Google or Microsoft, and a workable, if imperfect, translation is returned. It’s as if there’s a polyglot artificial intelligence residing up there in the great cloud server farms.

But that’s not how cloud services work. Instead, a multitude of examples of translations made by real human translators are gathered over the Internet. These are correlated with the example you send for translations. It will almost always turn out that multiple previous translations by real human translators had to contend with similar passages, so a collage of those previous translations will yield a usable result.”

Technology has made what once would have been seen as a miraculous feat into something quotidian and available practically for free. But, Lanier argues, it’s only an illusion that technology is responsible for the translation. In fact, the translation was done by thousands of human beings. Your retrieval of this information was facilitated by technology, but the work was done by humans — humans who will never be compensated for it. And this business model pervades Silicon Valley. Big tech firms lure you online with free media and services, while simultaneously encouraging you to provide services and media to others for free. Amazon makes money off of your product reviews. Twitter makes money from your tweets.

The first victims of this business model have been journalists, musicians and photographers. Lanier points out that the technological punditry has often cheered the demise of these careers as sources of secure middle-class jobs in their enthusiasm for a cheap, bountiful online experience. But as the “real” economy becomes more and more automated, what information-based work is safe from a similar fate? Education seems to be the next industry primed for the sort of disruption that the music industry faced 10 years ago, as the cost of education continues to rise at the same time the tools necessary for self-directed learning are increasingly at our fingertips.

Lanier calls his book a “work of futuristic economics,” or “speculative advocacy.” In other words, he’s imagining economic problems that are at least a generation away. But the contours of these problems are already taking shape, and he is right to feel the need to get a handle on them early. The Silicon Valley institutions that have such great influence over our lives didn’t get to where they are by being unconvincing. The new tools and toys that the tech industry produces are seductive, and for the most part the public has simply followed Silicon Valley wherever it has wanted to go, without stopping to think about the world that it’s creating.

But Lanier is asking us to stop and examine the economy we’re allowing to be created around us. If automation will subsume most of what we consider to be work, how will we spend our days, and how will we divvy up the resources created by the machines? It’s likely too early to come up with the solutions to such problems yet, but it will almost certainly involve the government. Government is the tool through which we set the rules and boundaries of markets. In a world where the most valuable assets are virtual, politics will play an increasingly important role.

Ultimately, Lanier envisages a future in which we would retain ownership of our virtual selves, the content we produce online, and the incremental improvements we make — passively or actively — to the products created by powerful companies. Some sort of universal micropayment infrastructure would be necessary to allow capital to flow to and from each player in the economy. Setting up this infrastructure will be a monumental undertaking for sure, but as Lanier points out, no more monumental than the infrastructures that have already been created.